Blue Appaloosa v. NDIC

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
JUNE 8, 2022
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2022 ND 119Blue Appaloosa, Inc., Appellant
v.
North Dakota Industrial Commission, Appellee
No. 20210292
Appeal from the District Court of Dunn County, Southwest Judicial District,
the Honorable James D. Gion, Judge.
AFFIRMED.
Opinion of the Court by Tufte, Justice.
Jonathan P. Sanstead, Bismarck, N.D., for appellant; submitted on brief.
Matthew A. Sagsveen, Solicitor General, and David R. Phillips, Assistant
Attorney General, Bismarck, N.D., for appellee; submitted on brief.
Blue Appaloosa v. NDIC
No. 20210292
Tufte, Justice.
[¶1] Blue Appaloosa, Inc., appeals from a judgment affirming an Industrial
Commission order determining it violated N.D. Admin. Code ch. 43-02-03 by
beginning construction of a treating plant prior to obtaining a permit or filing
a bond with the Commission. We affirm.
I
[¶2] In January 2018, Blue Appaloosa purchased undeveloped land in Dunn
County, North Dakota. A few days after its purchase, Blue Appaloosa stated in
an email to the oil and gas division of the Commission that it intended to
construct a waste disposal plant on the land. Blue Appaloosa had the land
surveyed by Advanced Engineering and Environmental Services, Inc. (AE2S).
In October and November of 2018, Badlands Energy Services performed the
heavy equipment work on the road leading up to the land. In addition to the
road work, Blue Appaloosa’s manager, Jeff Bennett, requested Badlands
Energy to level the land. The dirt work performed included leveling the site,
constructing a perimeter dike, stockpiling topsoil, building an entrance road,
and removing trees and shrubs. After the dirt work was completed, Bennett
hired individuals experienced in constructing and operating treating plants to
assist with developing a treating plant.
[¶3] In March 2019, the Commission received Blue Appaloosa’s application to
construct and operate a treating plant. After a hearing on the application, the
Commission brought an administrative action against Blue Appaloosa,
alleging it violated N.D. Admin. Code ch. 43-02-03 by beginning construction
of a treating plant without first obtaining a permit or posting bond with the
Commission. An administrative law judge (ALJ) presided over the
administrative hearing and issued recommended findings of fact and
conclusions of law. The ALJ concluded Blue Appaloosa violated N.D. Admin.
Code ch. 43-02-03 and recommended civil penalties and costs be assessed. The
Commission adopted the ALJ’s recommended findings and conclusions, and
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ordered penalties and costs against Blue Appaloosa. Blue Appaloosa appealed
to the district court, and the court affirmed the Commission’s order.
II
[¶4] Blue Appaloosa challenges the Commission’s jurisdiction and its
interpretation of N.D. Admin. Code ch. 43-02-03. We exercise limited judicial
review of Commission orders:
The standard of judicial review of Commission orders is set
forth in N.D.C.C. § 38-08-14(3), which provides that “[o]rders of the
commission must be sustained by the district court if the
commission has regularly pursued its authority and its findings
and conclusions are sustained by the law and by substantial and
credible evidence.” This Court applies the same standard of review
in appeals from district court involving orders of the Commission.
The “substantial evidence” test “is something less” than the
greater weight of the evidence and the preponderance of the
evidence tests, and differs from the usual standard of review for
administrative decisions under N.D.C.C. § 28-32-46. “Substantial
evidence is such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion,” and we “accord
greater deference to Industrial Commission findings of fact than
we ordinarily accord to other administrative agencies’ findings of
fact.” The Commission’s decisions on questions of law are fully
reviewable on appeal.
Langved v. Cont’l Res., Inc., 2017 ND 179, ¶ 8, 899 N.W.2d 267 (citations
omitted).
A
[¶5] Blue Appaloosa argues the Commission lacked jurisdiction over its land
prior to submitting its application to construct and operate a treating plant.
[¶6] The Commission has “extremely broad and comprehensive powers to
regulate oil and gas development in the state.” Langved, 2017 ND 179, ¶ 12.
The Commission’s jurisdiction is provided under N.D.C.C. § 38-08-04, which
states, in part:
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1. The commission has continuing jurisdiction and authority over
all persons and property, public and private, necessary to
enforce effectively the provisions of this chapter. The
commission has authority, and it is its duty, to make such
investigations as it deems proper to determine whether waste
exists or is imminent or whether other facts exist which justify
action by the commission. The commission has the authority:
a. To require:
....
(4) The furnishing of a reasonable bond with good and
sufficient surety, conditioned upon the full compliance
with this chapter, and the rules and orders of the
industrial commission . . . .
b. To regulate:
(1) The drilling, producing, and plugging of wells, the
restoration of drilling and production sites, and all other
operations for the production of oil or gas.
....
(5) Disposal of saltwater and oilfield wastes.
....
(b) The commission may consider, in addition to other
authority granted under this section, safety of the
location and road access to saltwater disposal wells,
treating plants, and all associated facilities.
See also Envtl. Driven Sols., LLC v. Dunn Cty., 2017 ND 45, ¶ 13, 890 N.W.2d
841 (concluding Commission has statutory authority to regulate treating
plants).
[¶7] Blue Appaloosa argues the Commission lacked jurisdiction prior to filing
its treating plant application with the Commission in March 2019. This
argument is premised on Blue Appaloosa’s assertion that prior to submitting
the application, the uncontroverted evidence showed no decision had been
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made about what to build on the site. Blue Appaloosa acknowledges that
activity consistent with anticipated construction of a treating plant had begun
on the site, but relied on testimony to the effect that the dirt work was also
consistent with other contemplated uses such as truck and trailer parking. The
Commission’s jurisdiction does not depend solely on the filing of an application,
but instead on the jurisdictional fact of intent. Intent to construct a treating
plant may be established by statements in an email or by statements in an
application. Under N.D.C.C. § 38-08-04(1), the Commission has the authority
and duty to investigate potential violations of its regulations, including a
failure to obtain a permit or file a bond. There was substantial evidence in the
record to support the Commission’s finding that Blue Appaloosa had intent to
construct a treating plant prior to submitting an application. Accordingly, the
Commission has jurisdiction.
B
[¶8] Blue Appaloosa argues the Commission erroneously found it began
construction of a treating plant in violation of N.D. Admin. Code ch. 43-02-03.
We interpret regulations in the same manner as statutes:
Administrative regulations are derivatives of statutes and are
construed under rules of statutory construction. Statutory
interpretation is a question of law, fully reviewable on appeal. The
objective in interpreting regulations is to determine the drafter’s
intent by first looking at the language itself. Words are given their
plain, ordinary, and commonly understood meaning, unless
defined or unless a contrary intent plainly appears. Regulations
are construed as a whole and are harmonized to give meaning to
related provisions. If the relevant language is clear and
unambiguous, the letter of it is not to be disregarded under the
pretext of pursuing its spirit.
Gadeco, LLC v. Indus. Comm’n, 2013 ND 72, ¶ 10, 830 N.W.2d 535 (cleaned
up). When interpreting and applying its own regulations, an agency has a
reasonable range of informed discretion. Americana Healthcare Ctr. v. N.D.
Dep’t of Human Servs., 540 N.W.2d 151, 153 (N.D. 1995). When the subject
matter is complex or technical, the agency’s expertise is entitled to special
4
deference. Id. (citing Hanson v. Indus. Comm’n, 466 N.W.2d 587, 590-91 (N.D.
1991)).
[¶9] The permit regulation at the time provided: “No treating plant may be
constructed without obtaining a permit from the commission after notice and
hearing.” N.D. Admin. Code § 43-02-03-51 (2014) (amended effective 2020).1
The bond regulation provided: “Before construction of a treating plant begins,
the operator shall file with the commission a surety bond or cash bond
conditioned upon compliance with all laws, rules and regulations, and orders
of the commission.” N.D. Admin. Code § 43-02-03-51.3(1) (2018) (amended
effective 2020). Blue Appaloosa did not obtain a permit or file a bond prior to
completing the dirt work in October and November 2018. Blue Appaloosa
asserts that dirt work, however, does not qualify as beginning construction on
a treating plant.
[¶10] “Treating plant” is defined as “any plant permanently constructed or
portable used for the purpose of wholly or partially reclaiming, treating,
processing, or recycling tank bottoms, waste oils, drilling mud, waste from
drilling operations, produced water, and other wastes related to crude oil and
natural gas exploration and production. . . .” N.D. Admin. Code § 43-02-03-
01(52). The Commission’s regulations do not define “constructed” or
“construction.” Mark Bohrer, the underground injection control and treating
plant manager in the oil and gas division of the Commission, testified dirt work
is a part of constructing a treating plant and the Commission “has always
interpreted dirt work to be construction or the beginning of operations.”
[¶11] The Commission found the dirt work performed on Blue Appaloosa’s land
was quite extensive, consisting of leveling the site, constructing a perimeter
dike, stockpiling topsoil, building an entrance road, and removing trees and
shrubs. Bohrer testified that a permit and bond are required prior to
performing dirt work necessary for a treating plant, because if the project were
to be abandoned, the Commission would be tasked with restoring the land to
1 The 2020 amendment became effective after any alleged violation in this case.
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its original condition. See N.D.C.C. § 38-08-04.12(1) (requiring land disturbed
by construction of treating plants to be reclaimed as close as practicable to its
original condition as it existed before the construction). Bohrer noted the
permit process allows the Commission to modify or reject plans that an
operator submits, and the bond requirement ensures the operator pays for the
reclamation costs if needed, avoiding the use of public funds.
[¶12] The information required to be included on an application for a treating
plant permit supports the Commission’s interpretation of its regulations that
construction includes dirt work. The application requires a schematic drawing
of the proposed treating plant site, detailing all facilities and equipment,
including the location of tanks, dikes, flow lines, topsoil stockpile, and road
access. N.D. Admin. Code § 43-02-03-51.1(1)(c). Further, a treating plant
“permit shall automatically expire one year after the date it was issued, unless
dirtwork operations have commenced to construct the site.” N.D. Admin. Code
§ 43-02-03-51.1(6). The Commission found Blue Appaloosa had already
performed several projects—diking, stockpiling topsoil, and building an
entrance road—the locations of which were required to be approved as a part
of the application and permitting process. Because any one feature of an
application may be rejected or modified by the Commission in order to enforce
the rules and statutes regulating oil and gas conservation in North Dakota,
N.D. Admin. Code § 43-02-03-51.1(2); N.D. Admin. Code § 43-02-03-05, the
application process would be impaired by an operator’s completion of this work
before submitting an application. See Gadeco, LLC, 2013 ND 72, ¶ 10
(harmonizing regulations to give meaning to related provisions). Subsection 6,
N.D. Admin. Code § 43-02-03-51.1, highlights the significance of dirt work
operations in the treating plant permit process generally, as such work holds
open a permit that has already been issued to an operator.
[¶13] Additionally, the Commission found that Blue Appaloosa’s intent to
construct a treating plant was clear from its initial contact. In January 2018,
soon after purchasing the land, Bennett emailed Bohrer to express Blue
Appaloosa’s intent to construct a waste disposal plant. In February 2018,
Bennett provided Bohrer “a legal description of the land where [it] would like
to build a waste transfer station” and a “rough sketch of the facility.” AE2S
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then surveyed the land. The Commission found the dirt work performed by
Badlands Energy “matched the depictions on the survey and the survey was
used a year later to support Blue Appaloosa’s application for a treating plant
permit.”
[¶14] We conclude the Commission has regularly pursued its authority, and its
findings and conclusions that Blue Appaloosa began construction on a treating
plant are sustained by the law and by substantial and credible evidence.
III
[¶15] Count 2 of the administrative complaint alleged two separate and
independent violations of the bond requirement. Because we conclude Blue
Appaloosa violated N.D. Admin. Code § 43-02-03-51.3(1) (2018) by beginning
construction of a treating plant prior to filing a bond, we need not reach
whether it also violated N.D. Admin. Code § 43-02-03-15(6) (2018) by beginning
operations of a treating plant prior to filing a bond. The judgment is affirmed.
[¶16] Jon J. Jensen, C.J.
Gerald W. VandeWalle
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte
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